The Texas Municipal Power Agency scrapped plans for a coal-capacity cutback when natural gas prices began to rise again after their 2012 lows, said Fitch Ratings in a Sept. 27 report.
Fitch affirmed the ‘A+’ ratings on the various Texas Municipal Power Agency (TMPA) revenue bonds. The rating outlook is stable.
TMPA is a joint-action agency that provides unit-based power to four member cities under court-validated, take-or-pay power sales contracts (PSCs) that expire on Sept. 1, 2018, Fitch noted. The agency’s sole generating asset is the 470-MW, coal-fired Gibbons Creek Steam Electric Station (GCSES). The agency also has about 300 miles of transmission lines.
“The unit is well positioned to be a stable, low-cost resource through its 2035 estimated useful life,” Fitch said about the power plant. “The final maturity of TMPA’s generation debt in 2018 is forecast to cause a considerable decline in wholesale rates, and management has modest expectations for additional environmental retrofits. Replacement operating agreements are under development for the period after the members’ existing PSCs expire.”
GCSES’ historical operating metrics are in line with industry averages. However, low natural gas prices resulted in a 49% decrease in the unit’s fiscal 2012 net generation, Fitch added. Output has begun to rebound with the rise in natural gas prices over the past year.
Replacement operating agreements under development for the period after the members’ existing PSCs expire could extend through the 2035 estimated useful life of the asset.
“The plant saw a 49% decrease in fiscal 2012 output, given the low natural gas price environment,” Fitch wrote. “However, TMPA scrapped a planned reserve shutdown in fall 2012 as natural gas prices began to rise; unit output has since begun to recover. Of note, the members remain financially obligated to TMPA pursuant to the take-or-pay PSCs, irrespective of actual plant operations.”
U.S. Energy Information Administration data shows that Gibbons Creek was taking coal earlier this year from the Coal Creek mine in Wyoming, which is an Arch Coal (NYSE: ACI) operation. TMPA shut an adjacent lignite mine in the 1990s in favor of taking coal for the plant from the Powder River Basin, which is a move that cut the plant’s SO2 emissions in half. An SO2 scrubber was added several years ago to further reduce emissions.